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China's Premier Li Keqiang is helping to shrink the powers of the state, but by how much is anybody's guess. (Image credit: AFP/Getty Images via @daylife)

Is the Chinese government actually shrinking? That's impossible for me to measure from here, but from what new Premier Li Keqiang is saying, the government is at least moving increasingly out of the way of businesses. The central planning powers of Beijing are slowly, purposefully, eroding.

On Monday, Li called for less political power in the economy in order to promote entrepreneurship and reform the Communist government. The Shanghai Daily reported on Tuesday that Li "urged officials to properly handle relations between the government and the market", delegating unnecessary powers and managing businesses the government now runs.

Does this sound like privatization? One of the reforms on the books is opening up some rail lines to private investors.

Li said in his national teleconference on Monday that the focus of government should be shifted to creating a favorable environment for development, providing quality public services and maintaining social equity and justice.

As it stands, China's population is aging and it doesn't have the social safety net people in the West or Japan are accustomed to. The government has to build that out or witness the rise of a massive population living in poverty in retirement.

China is also grappling with rising inequalities. The country got rich so quickly that now the uber-wealthy are sending kids to private high schools in the U.S. to get them accustomed to life in an American university shortly after. There are people in China that have so much money, they're buying up houses and leaving them empty just as a store of value, even if that value is eroding. The rich have more than they ever have. But the lower incomes -- while better off than they were a decade ago -- are being priced out of the market.

While this new-found wealth may be celebrated in the press, the majority of Chinese live on less than $8,000 a year and in cities like Shanghai, Guangzhou and Beijing, that doesn't go too far. Inequality is on the rise and the government is keenly aware of it.

Li said the transformation of government was an important part of his leadership role going forward.

On the macro side of things, the market is taking notice.

The State Council executive meeting held on May 6 was of particular interest. There, the government announced its reform agenda for 2013. Nine areas of priority were highlighted, including reforming public administration, fiscal reform, financial liberalization to allow for more international bank participation in the Chinese economy, social welfare reform, urbanization, agriculture modernization, and technology and innovation. This is a country watching Singapore become Asia's Silicon Valley. China's not having it.

"The carefully chosen content, wording and ordering of the reforms suggest the new government is fully aware of public discontent, understands the urgency and priority of needed reforms, and plans to push forward in a pragmatic manner," said Jian Chang of Capital in a note to clients on Friday.

In many cases, operational details of this reform-minded government are still being worked out. But if Li is to be trusted, and the assessment of Barclays in Hong Kong accurate, then China is crossing its own Rubicon in a sort of mild insurrection against old-style Communism.

There has been a broad consensus that further opening up and reform is the only way to revitalize the Chinese economy. The local currency, the yuan, is becoming more tradable. The government is allowing offshore markets to trade the yuan at a level much stronger than what the Central Bank sets it at.

However, just two months after the new government officially took office and nearly six months after the 18th Party Congress, there is a feeling of disenchantment, said Chang, with respect to reforms among the optimists. There is a sense of disbelief -- a sort of "believe it when I see it" attitude starting to be reinforced among those who are more pessimistic.

For Chang at Barclays, the market wants Premier Li to clarify regularly that Beijing is committed to more market-oriented approaches to the economy and what reforms will be introduced first, and when they will occur.

Some of the announced changes have already started, like VAT and resource pricing reforms. Others are underway with draft plans like allowing rich Chinese to invest abroad. And some are at the stage of specifying areas that could see investment breakthroughs like urbanization and rural reforms. Some of this might be delegated by private interests, though likely in a minority role. Others will be delegated, perhaps, to individual states and cities.

Either way, Beijing is shrinking on purpose.

"By summoning the courage to delegate power to lower levels, the government has made a crucial step toward ridding itself from the legacy of planned economy," Ding Yuanzhu, a professor with the Chinese Academy of Governance, told the Shanghai Dailyon Tuesday.